Special Report

Labor Pains

Indiana becomes a Midwestern alternative to the southern states.

By 2.3.12

Send to Kindle

Not so long ago, the Great Satan to the labor movement was Wisconsin Governor Scott Walker -- who faces a union-led recall election later this year. This week, if perhaps temporarily, that title is being claimed by Indiana Governor Mitch Daniels whose signature Wednesday made Indiana the only right-to-work state in the upper Midwest and one of only two such states in the entire northeast quarter of the nation. (See right-to-work state map here.)

Labor unions would like you to think that right-to-work laws outlaw unions. But what they actually do is say that a person can't be compelled to be a union member or pay union dues in order to hold a job. In other words, right-to-work laws increase the economic liberty of all Americans while threatening the funding sources for union bosses in states where workers are held captive to big labor. This of course threatens Democrats whose life blood is that same union money.

Indiana is the 23rd right-to-work state and the first state to adopt a right-to-work law since Oklahoma, which took that step in September, 2001.

The industrial, labor-dominated states of the Midwest's "Rust Belt" such as Illinois, Michigan, and Ohio have for years been losing jobs (and population) to the South, where there are legal protections of workers' and employers' freedom.

Indiana is aiming to become a Midwest alternative to those southern states. Republican Indiana Senate President Pro Tempore David Long, quoted in the Indianapolis Star, described an Indiana company which was going to move to Alabama but is now staying put, as well as saying that "a company from Michigan was planning to go to a 'right to work' state in the South. When they saw what was happening here, (they) invited the state to bid. . . . We are now in consideration for those jobs."

If Indiana can show that its new law is a magnet for jobs, it may turn out to be the first domino to fall across a part of the nation which has been rapidly losing manufacturing jobs while Democrats' desire to protect union coffers has trumped their desire to promote their citizens' prosperity.

Although less discussed than Indiana's move, Virginia also struck a blow for public finance rationality and to protect that state's right-to-work law. With the state's lieutenant governor casting a tie-breaking vote in the state senate, the legislature passed a bill that bans mandatory Project Labor Agreements (PLAs). The measure prohibits state agencies and their contractors from requiring union membership for any part of a project involving the building or repair of state facilities or infrastructure. Additionally, neither the state nor its contractors may discriminate against any worker or company for refusing to enter into a labor agreement with a union.

About two years ago, public sector union membership surpassed (in absolute number) private sector union membership, and that remains true today. A Bureau of Labor Statistics report released last week notes that "Public-sector workers had a union membership rate (37.0 percent) more than five times higher than that of private-sector workers (6.9 percent)." In absolute numbers, "In 2011, 7.6 million employees in the public sector belonged to a union, compared with 7.2 million union workers in the private sector."

Within the government sector, about 28 percent of federal workers, 31 percent of state workers, and 43 percent of state workers are unionized, each of those representing an increase over the prior year. The fact that the absolute number of workers in each of these categories has declined suggests that in trimming their workforces, government are cutting more non-union workers than union members. While this may be because their hands are tied by certain contracts, it also implies that governments are not cutting costs -- which is the real goal -- to the same degree that they are cutting head count.

Since 2000, the percentage of the private work force, which is unionized, has fallen from 9.0 percent to 6.9 percent, whereas the percentage of government workers (federal, state, and local) who are union members has remained fairly constant around 37 percent. The drop in private sector union membership continues a long-running trend while the public sector union membership maintains gains made during that same trend: In the 1940s, union membership was the inverse of today's situation, with more than a third of private sector workers and fewer than 10 percent of government workers being union members.

The downward trend in private sector union membership makes sense from the standpoint of one of unions' basic missions: protecting the physical health and safety of its members. As we've moved toward a less industrial and more service-oriented economy, as we've added safety equipment and regulations across the economy, this particular union function is less important than ever. In other words, the natural evolution of technology (and to a lesser degree government) have eliminated a key raison d'être for unions.

Some may argue that the growth of public sector unions was less predictable. After all, do most government workers (with the obvious exception of certain first responders) actually risk physical harm while sitting in their offices, ordering the lives of citizens?

But public choice economics explains all. In short, when politicians are spending other peoples' money on government workers' salaries, those citizens whose taxes are being taken to fund government each suffer a very small loss, perhaps an extra few dollars a year, whereas the cash flowing into union coffers is enormous. This cash is then used to support the very politicians whom the union leans on for raises for its members, and a vicious circle is created in which those spending the money and those receiving the money have very little incentive not to make government as expensive as possible.

The negotiation between government workers and their employees is fundamentally different from the same private sector conversation, where the employer is spending his, or his investors', own money.

A study by the Cato Institute's Chris Edwards offers historical context and current data:

Between 1950 and about 1980, average compensation in the public and private sectors moved in lockstep. But after 1980, public sector compensation growth began to outpace private sector compensation growth, and by the mid-1990s public sector workers had a substantial pay advantage. In the boom years of the late-1990s, private sector workers closed the gap a bit, but public sector pay moved ahead again in the 2000s.

The public sector pay advantage is most pronounced in benefits. Bureau of Economic Analysis data show that average compensation in the private sector was $59,909 in 2008, including $50,028 in wages and $9,881 in benefits. Average compensation in the public sector was $67,812, including $52,051 in wages and $15,761 in benefits.

Bureau of Labor Statistics data, however, "show a much larger gap between average public and average private sector compensation than the BEA data. In June 2009, total compensation per hour was $39.66 in the public sector, which was 45 percent greater than the average $27.42 per hour in the private sector. The public sector advantage in average wages was 34 percent, while the advantage in benefits was a huge 70 percent."

Democratic politicians spend taxpayers' money to buy votes of public sector union members and to maximize political contributions from those unions. They got away with it while the nation's economy was booming, while we were all "fat and happy." But despite the concentrated benefits and diffuse costs explained by public choice theory, when times are tough people notice their tax bills and they begrudge public sector employees who complain about not getting raises but rarely worry about losing the jobs that the rest of us pay for. So with unemployment stubbornly above 8 percent, with the so many Americans having to cut back on spending as they watch the values of their homes and savings decline, with a new level of public awareness of overspending and wastefulness at all levels of government, people have woken up to the predatory fleecing of citizens by unions and their Democrat enablers.

In other words, public choice theory suggests that if 50,000 people each pay $1 that goes to fund one government employee, the employee (and her union) will fight for that money whereas it's not worth the taxpayers' time to arm-wrestle with government for $1. But in times like this, we do in fact care about the $1, and when there are enough citizens together willing to fight for our dollars, we can become as motivated and perhaps as powerful as the unions and other special interests.

When a truly "swing state" like Indiana can pass a right-to-work law, when a "blue state" like Wisconsin can elect a Republican governor who goes after public sector unions head-on, and when Virginia can eliminate PLAs from public sector construction projects, it is a welcome sign that labor pains are increasing. The weakening of unions, public sector even more than private sector, is the most important policy goal that state governments should have if their aim is the solvency of their budgets and the prosperity of their citizens.

Nothing will give politicians the courage to take on unions who will continue to behave like wounded animals backed into a corner as much as the success of the courageous politicians who are already taking the political, and even physical, risk of doing the right thing.

Like this Article

Print this Article

Print Article
About the Author
Ross Kaminsky is a self-employed trader and investor and is a senior fellow of the Heartland Institute. He is the host of The Ross Kaminsky Show on Denver's NewsRadio 850 KOA on Saturday mornings from 6 AM to 9 AM. You can reach Ross by e-mail at rossputin(at)rossputin(dot)com.